Eighth UNCTAD Debt Management Conference
Geneva, 14 - 16 November 2011
Countries' Perspectives on Capacity Building Needs in
Debt Management (Part A)
by
Ms. Mahmuda Begum
Joint Secretary, Economic Relations Division,Ministry of
Finance of the People’s Republic of Bangladesh
Presented by Mr. Nazmus Sakib
Joint Secretary, Finance Division, Ministry of Finance of
the People’s Republic of Bangladesh
The views expressed are those of the author and do not necessarily reflect the views of UNCTAD
Topics: Countries’ Perspectives on Capacity
Building Needs in Debt Management
Mahmuda Begum
Joint Secretary
Economic Relations Division
M/O Finance
Bangladesh
Tokyo
Karachi
Shanghai
Dhaka
Hanoi
Manila
Bangkok
Kuala Lampur
Jakarta
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Part A
External Debt
At a Glance Bangladesh
1. Population
2. Area
3. Population Density
4. Life Expectancy
5. Literacy Rate
6. Poverty Rate
142.32 million
147,570 s km
964 / s km
65 Years
65%
31.5%
7. GDP
8. GDP Growth Rate
9. Per-Capita Income
10. Export
11. Import
12. Remittance
US$ 106 billion
6.7%
US$ 1980 (ppp)
US$ 23.0 billion
US$ 30.33 billion
US$ 11.7 billion
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Importance of External Aid
In Bangladesh, there exists a gap between
Government’s Income - Expenditure and Investment.
External Aid is playing a vital role for bridging the gap.
SOURCES OF PUBLIC FINANCING:
(a) Domestic borrowing
(b) External borrowing + grant
Budget Deficit
5.0%
of GDP
External Aid
2.0% of GDP
Domestic debt
3% of GDP
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Institutional Arrangements
Ministry of Finance (MOF) is responsible for domestic and
external borrowing. This is managed through four institutions :
Finance Division (co-ordination, monitoring, budgeting,
expenditure control, and macro-economic policies)
Economic Relations Division (ERD): (External public &
publicly guaranteed loans and grants)
The Bangladesh Bank ( treasury bills, bonds, balance of
payment, cash remittance to creditors for debt servicing, and
management of private sector external debt through Board of
Investment)
National Savings Directorate (NSD)_ is a separate entity under
MOF for issuing retail small savings certificates (tap issuance)
Cash and Debt Management Committee (CDMC), comprises
of high officials from all DeM entities acts as a key decision
making body in DeM operations
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External Debt Management Strategy
•Considered concessional external borrowing (IDA only
country) “usually grant or soft credits should be negotiated”.
•Bilateral sources (Japan, China, USA, Middle East
Countries, Korea, India, Sweden, Spain, etc.)
•Multilateral sources (IDA, ADB, IFAD, OPEC, IDB, NDF,
etc.)
•No borrowing from International Capital Market.
•Less Priority for taking Supplier’s Credit.
•Given the increasing scarcity of concessional resources
and the country's need for greater resources for sustainable
development, Bangladesh recently borrowing from ADB’s
non-concessional windows as Ordinary Capital Resources
(OCR).
•Debt service obligation should not be more than 18% of
annual export earnings.
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Database & Information System
The government, cognizant that sophisticated debt management
instruments should be used to ensure sustainability, accountability
and transparency. Accordingly Debt Management and Financial
Analysis System (DMFAS) has been used by ERD since 1992
aim at to improve the country’s capacity to manage its external
debt.
FABA generally share all external debt related information with
Finance Division and Central Bank at least once a month.
Reconciliation of debt data between Donors & FABA on bi-annual
basis.
ERD also send information to IMF, WB and other Donors and
review missions as and when required.
Submit external debt figures to the Parliament.
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Selected Economic Indicators on External
Debt (FY 2010-2011)
excluding
BPC
including
short -term
Total External Debt to GDP ratio
20.0%
21.53%
Total External Debt to revenue ratio
170.42
182.62
DSL as % of exports of goods and services (XGS)
2.62%
5.2%
Interest as % of XGS
0.54%
0.60%
Interest as % of revenue
1.49%
1.66%
External Debt as % of XGS
61.38%
65.77%
External Debt Per Capita (US$)
150.49
Year-end Exchange Rate per US$
74.00
Foreign Exchange Reserves (US$)
10.75 billion
Net transfer (excluding BPC) US$
1053 million
BPC = Bangladesh Petroleum Corporation, borrow short term for purchasing crude oil.
Not regular debt.
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Current Debt Situation
•
•
•
•
•
To manage the overall fiscal deficits, finance
from domestic resources is increased.
Government is borrowing domestic loans
through banks and savings instrument.
External components have declined from 48
percent in FY94 to about 21.5 percent of
GDP at present.
Domestic debt, on the other hand, rising
from about 4 percent of GDP in FY 91 to
about 20.5 percent at present
20% of revenue budget spend for to pay the
interest.
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Government Debt Ratio (FY 2010-2011)
Domestic Debt
External Debt
(MLT)
Total
Total debt / revenue (%)
20.5%
180.16
20.0%
170.42
40.5%
350.58
Debt Service as % GDP
4.08%
0.94%
5.02%
Interest as % Revenue
18.35%
1.45%
19.8%
Total Debt to GDP Ratio
Domestic debt constitutes 50% of the total government debt,
Domestic debt service represents around 82% of the total debt
service.
This is mainly because of the short-term nature of domestic
borrowing instruments ; and
Interest rate is comparatively higher than that of external debt.
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Government Six Five year Plan identified a significant
resource gap;
Soft Loan and grant are not sufficient to fulfill the gap at
present;
The financial crisis and global recession will also increase
financing needs;
Country needed access to significant additional funding to
accelerate growth and the achievement of Millennium
Development Goals (MDGs);
Given the increasing scarcity of concessional resources and
the country's need for greater resources for sustainable
development Bangladesh will certainly be exposed to more
non-concessional borrowings;
This major challenge will require a re-evaluation of the
existing debt management strategies in Bangladesh.
Challenges in External Resources
Utilization
Timely implementation
Lower disbursement
Delay in project approval
Delay in procurement
Capacity constraints
Aid effectiveness
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Implications
·Slow implementation
Low disbursement
Time
and cost overrun
Wider resource gap
·Aid Effectiveness (PD & AAA):
Harmonization
Alignment
Ownership
Accountability
Managing Results
·Better utilization
improved infrastructure and
environment
Enhanced investment and trade
higher employment, growth and equity.
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Institutional Weakness- Institutions involved in debt
management is fragmented,- domestic and external debt
dealt with separately;
Incomplete Debt Recording System;
Weak legal framework;
Lack of adequate debt database and information systems;
Policies and procedures are not up-dated;
Absence in the business continuity planning, and wellarticulated responsibilities for staff;
Weak operational risk management system;
Funding sources are limited;
Domestic debt market development is neglected;
Weak disaster recovery plan;
Cash flow forecasting system is weak.
Capacity Building in Accessing New
Sources of Funding
Bangladesh has been relying heavily on concessional credits
from bilateral and multilateral development partners
ODA is shrinking, additional funding required to achieve
higher growth trajectory (especially in infrastructure sector)
Need to explore the possibility of accessing new sources of
finding
At the same time, have to maintain sustainable limit of debt
and consider the possible cost of borrowing
Capacity building is required for handling these new
borrowing options
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Support Needed
Capacity building program is needed in following
areas:
An adequate Legal framework- This should
clarify the authority to borrow and to issue new
debt, invest, and undertake transactions on the
government’s behalf; need clear debt law;
Development of a well-developed mediumterm macroeconomic framework, with clear
and consistent objectives for fiscal and
monetary policies;
Support Needed Cont..
Effective Institutional arrangement – The supporting
governance structure should clearly outline and describe
the roles and responsibilities of all relevant institutions
involved in debt management activities. It should be clear
which agent is responsible for debt management decision;
Comprehensive and efficient debt recordingEstablishing a complete, consistence, accurate and
effective database which covers all types of debt. A
precondition for high-quality and comprehensive debt data
is efficient debt recording.
Coordination with external partners and other financial
institutions will be necessary to effectively scale up these
capacity building activities.
Formulation of MTDS
Before going for commercial or market borrowing it is
necessary to formulate an effective MTDS:
That will defines the amount of debt in terms of external
and domestic, currencies, source of financing, and
destination in order to control its impact in social and
financial aspects;
It should be in the context of the overall external
resource strategy, domestic financial environment and
the international financial situation;
Adequately evaluates the costs and risk of new
borrowing, so that we could meet our financing needs at
low cost, subject to a prudent degree of risk, and
consistent with maintaining debt sustainability.
Capacity Building in Accessing New Sources of Funding
ODA is shrinking, additional funding required to achieve
higher growth trajectory (especially in infrastructure sector);
Need to explore the possibility of accessing new sources of
finding;
To examine the vulnerability of non-concessional loan,
support on 'Strengthening External Debt Management
Capacity for Non Concessional Borrowings will be
required, focus should be on following areas:
• Develop the capacity of the Government to effectively
contract, manage and utilize non-concessional borrowings.
• With the implementation of macroeconomic modeling it will
examine the capacity to service overall non-concessional
debt.
• Evaluate the sustainability of alternative external borrowing
program.
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Need to Closely Monitor
Contingent Liabilities
The shortcomings of conventional
accounting systems in capturing the full
exposure to such liabilities
Need to measure and monitor them,
with a view of enhancing transparency
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Conclusion
Effective utilization of foreign aid can help in achieving the
desired economic goal of the country;
New aid is playing a vital role to fill the gross financing
needs (Budget deficit +amortization) in order to maintain the
high economic growth;
Aid is spending in compliance with “Six Five Year Plan” to
achieve the MDG goals;
Macroeconomic outcomes improved throughout the 2004s
with annual real GDP growth averaging more than 6.2
percent in comparison to 4 percent in the 1980s.
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Welcome Comments,
Questions……
Thanks for a patient hearing
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